Wednesday, September 12, 2012

Patent-based disruption of iPhone 5 sales highly unlikely for at least the remainder of the year

On the occasion of today's iPhone 5 presentation, I'm now going to explain why it's highly unlikely that sales of Apple's new smartphone will be disrupted by any patent holder in the coming months. There may be preliminary or even seemingly-final rulings during that period, but in practical terms, Apple is almost certainly safe from any actual, material impact on its iPhone 5 sales for the important Christmas selling season. There's huge pent-up demand for the iPhone 5 (despite the fact that there are also some disappointed fans), and those who've been impatiently awaiting it will mostly buy it over the next few months.

Ten days ago I already looked at the chances of Samsung enforcing 4G LTE patents against the iPhone 5 in different jurisdictions. But I didn't address timing and, what's more important, Samsung has non-LTE patents in action against Apple, and there are also various Google (i.e., Motorola Mobility) and HTC lawsuits. So this post has a focus on timing and, in terms of the relevant patents and their holders, a broader perspective than the September 2 post, but it does not adddress the likelihood of success on the merits of these cases -- the underlying assumption here is, just for the sake of the argument and totally unrelated to what I expect the outcome will be, that Samsung, Motorola and HTC will win their pending as well as potential new cases they may bring now. And even then, some of those lawsuits wouldn't have business impact before the successor to the iPhone 5 ships, and others could still hit the iPhone 5 while it's the current-generation iPhone, but not before Apple will already have sold tens of millions of units.

There is one limitation here: I focus entirely on patent lawsuits brought by Apple's three large rivals: Samsung, Google's Motorola Mobility, and HTC. I won't elaborate on "troll" lawsuits, and while there are dozens of them, I'm not aware of any such action that could change the picture in the coming months. Even if a non-practicing entity prevailed, Apple could solve the problem with small amounts of money, while the Android camp is, more than anything else, interested in a free pass for infringement of Apple's patents.

Anyway, the bottom line is what the headline stated: even if anything happened, there's no serious dark cloud hanging above the iPhone 5 in any jurisdictions for at least the remainder of the year (if the question is when there will be business impact, not just interim steps that may lead to such impact later on).

First off, reporters and analysts frequently fail to understand that injunctions granted based on past infringement by older products may very well apply, in different jurisdictions (particularly the United States and Germany, the two primary battlegrounds), to new products that infringe the same patent (especially if they infringe the same patent claims) in any way or, under the "colorable difference" standard applied in the U.S., in more or less the same way. The law is not as stupid as some people think. End-runs based on new products rarely ever work.

But so far the Android camp hasn't won much against Apple (and Apple also has miles to go, but it's been more successful than its adversaries and now has a lot of momentum after the California verdict).

Motorola Mobility has won two German injunctions, one over a standard-essential patent (that patent is 2G-related, but due to backwards compatibility requirements would also affect 3G and 4G devices) and one over a non-standard-essential patent on push notifications. The first injunction doesn't matter anymore because Motorola recently felt forced to accept an offer by Apple (which is not even based on a particular amount of money since the royalty rate will have to be set by a court of law) for taking a license to Motorola's wireless SEPs. In other words, they're still suing each other over this matter, but only for the money, and whatever Motorola will get, it won't hurt Apple. The push email injunction is still being enforced, but Apple's devices themselves are sold in a non-infringing form. This matter is on appeal, and Apple is challenging the validity of that patent in a separate nullity action, but Germany-based Apple users probably won't get push email back for about another year or more, unless Apple and Google settle in the meantime.

Motorola was trying to win even a third German injunction against Apple, and a trial in Mannheim had been scheduled for the summer but was canceled, presumably because the Google subsidiary's lawyers determined they couldn't prove infringement.

1.3 HTC: no injunctions in place

HTC has not (yet) won any offensive case against Apple anywhere. Nor have its subsidiary S3 Graphics and its affiliate Via Technologies.

The California jury cleared Apple of infringement of Samsung's five patents-in-suit. This finding can be overruled by Judge Koh "as a matter of law". A hearing on the parties' Rule 50 (overrule-the-jury) motions will take place on December 6. At that point, the court will also hear Apple's request for a permanent injunction, but Samsung will only be allowed to request injunctive relief if its Rule 50 motion succeeds on any of its own offensive claims. I'm not even sure that the Rule 50 decisions will come down before the Holiday Season, but even if they do, Samsung will only then get a schedule for requesting an injunction, and we're well beyond the turn of the year for the earliest date on which it could get any.

In Germany, there are four Samsung v. Apple trials coming up, all of them at the Mannheim Regional Court, and the first one of them this Friday (needless to say I'll be there). Samsung asserted those four patents latst December, and I listed them at the time. Judge Andreas Voss ("Voß" in German) typically announces his panel's decisions about two months after trial, adopting faster schedules only if there's an unusual sense of urgency, for example, because of a patent approaching its expiration. So the trials taking place between mid-September and mid-October will result in decisions between mid-November and mid-December. If injunctions are granted, they will be permanent injunctions (not just preliminary ones entered at the end of fast-track proceedings) but appealable, so they will be only "preliminarily enforceable". This means Samsung would have to post a bond and formally demand compliance, a process that always takes a few weeks. Apple would ask the appeals court (the Karlsruhe Higher Regional Court) for a stay. If there's no stay and if Samsung then enforces, we'll be close to or after Christmas, and resellers will have plenty of iPhone 5 units in their warehouses, so actual business impact would take until next year.

Two of those Mannheim lawsuits are over standard-essential patents, while two are not. Apple could work around the non-essential ones, such as a smiley input patent. No one can work around truly standard-essential patents, but Apple could make Samsung the kind of offer that it made to Motorola, and the appeals court would probably grant another stay on that basis anyway, but I explained why even without a stay, Apple's resellers would have enough supply for the remainder of the year.

It's likely that Samsung will formally accuse the iPhone 5 of infringement at some or all of those near-term Mannheim trials. In Germany, infringement accusations can still be amended at trial, though this can result in a need for post-trial briefings and some delay. Based on today's announcement, Samsung's lawyers could claim at the trial on Friday that the iPhone 5 will infringe the standard-essential patent at issue in that action. If an infringement accusation is based on the specifications of an industry standard (as opposed to a reverse-engineering-based analysis of what the actual product does), an announcement can be a basis for an infringement accusation. Apple would likely point to some German case law that sets a rather high bar for patent infringement complaints prior to the release of a product, but Samsung could try. And some of those trials will take place after the product becomes available. Also, even if Samsung did not formally accuse the iPhone 5, German patent injunctions typically recite the infringed patent claims as opposed to naming particular devices (even though there must be at least one exemplary accused device to have a case) -- a fairly broad kind of injunction called "obey-the-law injunction" that is rather problematic in the United States.

All in all, the timing of those German trials is Samsung's best shot at winning at least a ruling (even if it won't have immediate business impact) that relates to the iPhone 5.

I'm not aware of upcoming Samsung v. Apple decisions in other jurisdictions in the next few months. (A trial in Australia started even shortly before the U.S. trial but no decision is expected before next spring.)

Motorola was hoping to win an ITC import ban against Apple this year, but the Commission, the six-member decision-making body at the top of the ITC, cleared Apple of infringement of three of the four patents-in-suit and remanded the invesigation, as far as the fourth patent is concerned, to an Administrative Law Judge. No new schedule has been set. Even if a new initial determination came down very quickly (which I doubt), it would again take the usual four months between the preliminary ruling and the final one, and subsequently there would be the 60-day Presidential Review period. By the way, ITC import bans work almost like "obey-the-law injunctions" with respect to the particular patent claims found violated, except that the ITC will in case of doubt (over whether new products really infringe) launch an enforcement proceeding that can easily take a year, as Apple just experienced in its own enforcement efforts against HTC.

Motorola recently brought a second ITC complaint against Apple, and the investigation has not even begun yet. It will probably begin within less than a week, but then it will take something between 16 and 18 months based on the schedules that are usually set.

The Düsseldorf Regional Court will hold Motorola v. Apple trials in late January. The legal entity defending itself in those actions is Apple Retail Germany GmbH, the company operating the German Apple Stores. In Germany, Motorola tends to sue in Mannheim for the most part, and as far as I know, there won't be any Motorola v. Apple trial in Mannheim between now and early December, and therefore no related decision this year.

1.3 HTC's pending actions

HTC primarily wants to stall Apple's enforcement, and it's really very good at that. That's why it requested -- and won -- a sweeping stay from the United States District Court for the District of Delaware. One Delaware HTC v. Apple infringement action is progressing. In that one, HTC is asserting patents it borrowed from Google, and Apple is trying to have those loan patents thrown out the way it worked for Apple at the ITC. Otherwise the trial is currently scheduled for early 2014.

A trial of HTC's second ITC complaint against Apple started last week, and the remaining patents-in-suit are allegedly 4G/LTE-essential patents. Apple has requested sanctions because an HTC witness said he didn't know what inventions, if any, his patents cover. Anyway, the preliminary ruling is scheduled for November 30, 2012, and the final decision for April 1, 2013.

HTC subsidiary S3 Graphics also has a second ITC complaint going against Apple. The hearing will start in late November, the preliminary ruling is due on February 20, 2013, and the target date for the final decision is June 20, 2013. There's also an ITC investigation of a complaint by VIA Technologies, a chipset maker that is part of the same corporate family as HTC. A trial took place this summer, a preliminary ruling is due on November 9, 2012, and the target date for the final decision is March 14, 2013.

HTC and S3G also brought German lawsuits against Apple. So far they have not shown up on my local radar screen, making it rather unlikely that they'll go to trial this year.

With so few existing injunctions that could be leveaged against the iPhone 5 in place, and with so few rulings coming up in the near term, Apple's rivals might file preliminary injunction motions in the next weeks, claiming that the iPhone 5 violates their rights. Courts decide preliminary injunction requests on the fast track, but even in Germany, where full-blown main proceedings (with trial and everything) can be adjudged within nine months by some courts, preliminary injunction decisions on technical patents take about three months.

Based on how Samsung's preliminary injunction requests against the iPhone 4S were handled, it looks like other European jurisdictions also need a few months to make such decisions. And in the U.S. it tends to take even longer.

One factor that is highly important when seeking preliminary injunctions anywhere is that there must be an unusual sense of urgency. If a right holder waits too long, the court wonders why it should be rushed to a decision after precious time was wasted. In the United States, this analysis is very case-specific. In Germany, depending on the part of the country, the courts have general rules (like unwritten local rules) that preclude the pursuit of preliminary injunctions after a month or, at the most, two months. I don't think any such hard or soft timelines would be a problem in a formal sense: if anyone wants to attack the iPhone 5, it will happen very, very soon. But such attacks will probably be based on patents that earlier Apple products would already have infringed if the iPhone 5 infringed them now. For example, 4G patents could already have been asserted against the 4G version of the "new iPad" (iPad 3). In my observation, the argument that previously-released products would already have infringed does not usually result in an outright denial of a preliminary injunction, but it does nevertheless make judges skeptical of the need for a fast-track sales ban.

In jurisdictions in which injunctive relief is equitable relief (meaning the courts have some discretion), a balance-of-hardships and public-interest analysis would also make it harder to win and enforce an injunction during the Christmas selling season.

Also, if Apple's adversaries really wanted to maximize chances of immediate impact, they'd probably have to sue resellers (especially major carriers) directly -- but those are their own customers as well, and while legally possible, this would also be viewed unfavorably by the courts.

So there may be some preliminary injunction requests in different jurisdictions, most likely from Samsung and potentially also from Google's Motorola Mobility, and maybe some hearings or even some decisions, but actual disruption in the coming months is nevertheless very unlikely. Of course, if there are any such developments, I'll follow them closely.

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About Me

Florian Mueller is an app developer who used to be an award-winning intellectual property activist. His 30 years of software industry expertise span different market segments (games, education, productivity and infrastructure software), diverse business models, and technical and commercial areas of responsibility. In recent years, Florian advised a diversity of clients on the patent wars surrounding mobile devices, and on their economic and technical implications. (In order to avoid conflicts of interest, Florian does not hold or initiate transactions in any technology stocks or derivatives thereof, except that he is long AAPL.) He is now developing games for smartphones and tablet computers.